Political decisions are about both action and effect. Today’s announcement of the release of oil from the Strategic Petroleum Reserve is a good example. The Biden administration, facing the problem of rising prices for gasoline (and a plunge in the president’s ratings), took action. It has done something. Unfortunately, whether the decision will have the desired impact on prices is another question.
The excuses are included, though a little obscurely, in the announcement. The release will start impacting the oil market in mid- to late-December, according to a Reuters report of the White House statement, rather than immediately. And the U.S. is working with oil importers — China, India, South Korea, Japan and Britain — which also will be opening up their strategic reserves. So, bonus points for working with international partners (who can share the blame if the result is less than optimum).
The amount of oil the U.S. will release — 50 million barrels — is a mere fraction of world demand for around 100 million barrels per day. India plans to release 5 million barrels. The other countries have yet to give any figures.
The initial impact on prices in the market has been, slightly confusingly, an uptick. We shall have to see what happens during the rest of the day. Perversely, prices have been weakening in recent days because of renewed COVID-19 worries in parts of the world, and concern about inflation’s impact on the economy at home.
At least one eye must be on the actions and comments of OPEC+, the Saudi and Russian expanded version of the OPEC oil exporters cartel, which has stubbornly refused to acknowledge there is a problem and has blocked any increase in the additional volumes it has allowed its members to produce.
President Biden is having to confront not one but two competitors in this ring, which in sporting analogies is probably more wrestling than boxing. Russian President Vladimir Putin is looking to outmaneuver Washington on providing natural gas to Europe, where he has been irritated by sanctions designed to reduce his political games. Crown Prince Mohammed bin Salman of Saudi Arabia evidently resents that the U.S. leader refuses to deal directly with him (for unstated reasons but probably the de facto Saudi leader’s responsibility for the murder of dissident journalist Jamal Khashoggi). Neither Putin nor MbS, as the Saudi prince is known, went to the recent COP26 climate summit in Glasgow.
The White House may feel it has wrong-footed the Putin/MbS duo by getting China to sign onto an oil release, but this is not a knock-out blow.
Today’s decision will reopen the debate about the proper use of the strategic reserve, originally intended to counter any major supply disruption, such as the 1970s Arab oil embargo of the U.S. and later concern about the impact of the overthrow of the Shah of Iran. The last time there was a coordinated release of oil was in 2011, when there was supply disruption because of pre-civil war chaos in Libya.
And there is more to oil price crises than just the price at the pump. The U.S. economy is also facing the consequences of high fuel oil and natural gas prices. Americans like to keep warm in winter, as well as drive. It could become an even bigger issue, rather than a sidelined one.
Simon Henderson is the Baker Fellow and director of the Bernstein Program on Gulf and Energy Policy at the Washington Institute for Near East Policy. Follow him on Twitter @shendersongulf.